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Why Australia's Housing Market Is in Trouble?

John Tran
October 24, 2022
Why Australia's Housing Market Is in Trouble?

The Australian housing market has grown increasingly expensive, with prices rising faster than wages. As a result, this has made it difficult for many Aussies to buy a home and has increased rental costs. 

So, how could these declining values impact your mortgage when the cost of living and interest rates are rising? 

In this article, we will go through the crisis that Australia's housing market is facing and its impact on you as a mortgage holder.

The Property Markets are in Decline

The Australian Financial Review reports that prices for homes and apartments have decreased over the previous three months in 2,404 markets, representing a dip in roughly 80% of Australian areas. This number is almost double the amount recorded during the last quarter.

New data from CoreLogic also shows that all areas in Sydney, Melbourne, Canberra, and Hobart that were reviewed experienced a decline in values during the third quarter, with Hobart being the only city to have a quarterly decline in all unit markets. ( source: mpamag )

The market tool record shows that 79.5% of house and unit markets analysed saw values retreat over the September quarter. 

Eliza Owen, head of research at CoreLogic, stated that price reductions would probably grow even more in the December quarter because borrowers are still paying higher interest rates.

An Emerging Rental Market Crisis

There's no doubt that renting is also getting more expensive in Australia.

In fact, recent data from CoreLogic show that over the last 12 months, the average rent for a house has climbed by 4.3%. Not only that, but the cost of renting an apartment has also increased by 3.7%.(source: interest.co.nz)

Moreover, in PopTrack's Market Insight Report, properties were available for less than $400 last month, which is the fastest rate of decline in the nation for the affordable rental market in Melbourne.

So what does this mean for renters? Well, it's becoming more and more challenging to find affordable rental properties. And if you're already renting, you probably have to pay extra weekly just to keep a roof over your head.

Of course, this isn't good news for anyone looking to rent a property in Australia. But it's tough for those on a low or fixed income and families with children.

If you're currently renting, there are a few things you can do to try and keep your costs down. 

  • See if you can negotiate a better deal with your landlord. If they know you're a good tenant who pays their rent on time, they may be willing to give you a break on the price.
  • Try to find a property in an area where rents are cheaper. This might mean moving to a less desirable location, but it could save you hundreds of dollars each month.
  • Do not be reluctant to ask family or friends if they are aware of any affordable rental homes because sometimes word-of-mouth is the best source for finding deals.

Remember that you're not the only one battling to keep up with Australia's growing rent prices. That's why asking for assistance from a respectable lender or mortgage broker is one of the things you may do to try to lessen the financial stress.

How to avoid getting trapped in a mortgage prison

As property values continue to decline around Australia and interest rates rise, many borrowers find themselves stuck in their present mortgages with no way out.

According to NAB predictions, the median house price in Sydney could decrease by more than $175,000 by the end of 2023, while it could decrease by more than $156,000 in Melbourne. (source: 9news)

This can be a rough ride, as it might put first-time homeowners with smaller down payments in a problematic situation known as a mortgage prison.

Mortgage Prison is a term used when you can no longer afford your mortgage payments, and you're stuck in your home because the value of your property has declined so much that you owe more than it's worth.

Various reasons can lead a borrower to become stuck in their current loan, such as if the value of their house decreases, interest rates increase, or income changes.

So, how can you avoid getting trapped in a mortgage prison? Or if you're trapped, what can you do?

  • Don't take on more debt than you can realistically afford. It may be tempting to try and stretch your budget to the max to get into that dream home, but if you can't make the payments down the road, you'll be stuck.
  • Make sure you shop around for the best mortgage rate before you commit. There are a lot of different lenders out there, and some will offer better terms than others. It pays to do your research.
  • If you do find yourself in a mortgage prison, don't despair. There are options available to help you get out. You can try refinancing your loan or selling your home if necessary. Whatever you do, don't just sit there and accept your fate – take action and get yourself out of that mortgage prison!

Peter White, director of the Finance Brokers Association of Australia, recommended that seeking financial advise from a mortgage broker and getting the best guidance will give you a better outcome.

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